Final AIG meetings on September 15 at the New York Federal Reserve4.8.2

$60 million settlement for Massachusetts subprime mortgages4.9

Abacus mortgage-backed CDOs4.10

2010 SEC civil fraud lawsuit4.10.1

Other prosecutorial actions4.11

Alleged commodity price manipulation4.12

Goldman Sachs Commodity Index and the 2005–2008 Food Bubble4.12.1

Aluminum price and supply4.12.2

Oil futures speculation4.13

Initial public offering kickback bribes4.14

Taylor-related civil and criminal cases4.15

Danish utility sale4.16

Libya investment losses4.17

List of officers and directors5

Headquarters and other major offices6

Goldman Sachs research papers7

See also8

References9

Further reading10

External links11

History

1869–1930

Goldman Sachs was founded in New York in 1869 by Marcus Goldman.[2][3] In 1882, Goldman's son-in-law Samuel Sachs joined the firm.[4] In 1885, Goldman took his son Henry and his son-in-law Ludwig Dreyfuss into the business and the firm adopted its present name, Goldman Sachs & Co.[5] The company made a name for itself pioneering the use of commercial paper for entrepreneurs and joined the New York Stock Exchange (NYSE) in 1896.[6] By 1898, the firm's capital stood at $1.6 million, and was growing rapidly.[6]

In 1920, the firm moved from 60 Wall Street to $1.5 million 12-storey premises on 30-32 Pine Street.[6]

By 1928, Catchings was the Goldman partner with the single largest stake in the firm.[6]

On December 4, 1928, the firm launched the Goldman Sachs Trading Corp. a closed-end fund. The fund failed during the Stock Market Crash of 1929, amid accusations that Goldman had engaged in share price manipulation and insider trading.[6] Fortunately for the firm, insider trading would not be made illegal in the United States until 1934.[6]

1930–1980

In 1930, the firm ousted Catchings, and Sidney Weinberg assumed the role of senior partner and shifted Goldman's focus away from trading and towards investment banking.[6] It was Weinberg's actions that helped to restore some of Goldman's tarnished reputation. On the back of Weinberg, Goldman was lead advisor on the Ford Motor Company's IPO in 1956, which at the time was a major coup on Wall Street. Under Weinberg's reign the firm also started an investment research division and a municipal bond department. It also was at this time that the firm became an early innovator in risk arbitrage.

Gus Levy joined the firm in the 1950s as a securities trader, which started a trend at Goldman where there would be two powers generally vying for supremacy, one from investment banking and one from securities trading. For most of the 1950s and 1960s, this would be Weinberg and Levy. Levy was a pioneer in block trading and the firm established this trend under his guidance. Due to Weinberg's heavy influence at the firm, it formed an investment banking division in 1956 in an attempt to spread around influence and not focus it all on Weinberg.

In 1969, Levy took over as Senior Partner from Weinberg, and built Goldman's trading franchise once again. It is Levy who is credited with Goldman's famous philosophy of being "long-term greedy", which implied that as long as money is made over the long term, trading losses in the short term were not to be worried about. At the same time, partners reinvested almost all of their earnings in the firm, so the focus was always on the future.[7] That same year, Weinberg retired from the firm.

Another financial crisis for the firm occurred in 1970, when the Penn Central Transportation Company went bankrupt with over $80 million in commercial paper outstanding, most of it issued through Goldman Sachs. The bankruptcy was large, and the resulting lawsuits, notably by the SEC, threatened the partnership capital, life and reputation of the firm.[8] It was this bankruptcy that resulted in credit ratings being created for every issuer of commercial paper today by several credit rating services.[9]

During the 1970s, the firm also expanded in several ways. Under the direction of Senior Partner Stanley R. Miller, it opened its first international office in London in 1970, and created a Chase, AIG, etc.) following Goldman's lead. These funds disturbed the normal relationship between supply and demand, making prices more volatile and defeating the purpose of the exchanges (price stabilization) in the first place.[235][236][237]

^Cadie Thompson (November 6, 2013). "Twitter IPO prices at $26 per share, above estimates". CNBC. Retrieved 1 April 2014. Twitter priced at $26 per share for its initial public offering, the company said on Wednesday.

^"Twitter shares jump 73% in market debut". BBC News:Business. November 7, 2013. Retrieved 1 April 2014. Shares in the microblogging site Twitter closed at $44.90, up more than 73% from their initial price of $26 each.

^"The Grand Parkway Project: Improving Transportation in one of the fastest-growing cities in the US". Retrieved 15 May 2014. To keep progress in motion, the Grand Parkway Transportation Corporation is constructing the Grand Parkway System, part of the larger Grand Parkway Project, a 184-mile highway surrounding the greater Houston area.

^Braithwaite, Tom (November 3, 2013). [(1) http://www.ft.com/intl/cms/s/0/d7086aee-4493-11e3-a751-00144feabdc0.html#axzz31OrPiOnI "Goldman Plans $250 million social impact fund"] . Financial Times. Retrieved 15 May 2014. High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/d7086aee-4493-11e3-a751-00144feabdc0.html#ixzz31m2meSUM Goldman Sachs is launching a $250m “social impact” fund whose returns are linked to the success of projects such as affordable housing, pre-school education and how many young criminals commit new offences after leaving New York’s notorious Rikers Island prison.

^"GS Social Impact Fund" (PDF). Goldman Sachs. Retrieved 15 May 2014. The GS Social Impact Fund is one of the first domestic impact investing vehicles to be sponsored by a major financial institution, and is being launched by the Urban Investment Group (“UIG ”), which has invested over $ 3 billion of GS capital in impact investing opportunities from 2001 to date.

^Chen, David W. (August 2, 2012). "Goldman to Invest in New York City Jail Program". The New York Times.

^McLean and Nocera. All the Devils Are Here. p. 361. By the middle of the summer, Goldman Sachs was producing blowout profits, had repaid its $10 billion in TARP funds, and had already set aside $11.4 billion -- a record sum -- with which to pay bonuses to employees.

^ abCarney, John. "Matt Taibbi's "Vampire Squid" Takedown Of Goldman Sachs Is Finally Online". July 16, 2009. Retrieved 30 January 2014. What's fascinating to us is how the spirit of Taibbi's piece, if not its details, has really caught on. Yesterday, the Wall Street Journal attacked Goldman Sachs as a heavily subsidized, implicitly guaranteed firm akin to Fannie Mae. They called it "Goldie Mac." The New York Times news report on the reaction to Goldman's earnings also didn't shy away from these sentiments. It said that Goldman's traders are known as the Bandits of Broad Street (which is clever, although we haven't heard that one before) and quoted an unnamed Wall Street who compared Goldman staff to "orcs" in the Lord of the Rings (which is even better).

^Taibbi, Matt (July 9, 2009). "The Great American Bubble Machine". Rolling Stone. Retrieved 30 January 2014. From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression -- and they're about to do it again

^"Goldman Pays to End State Inquiry Into Loans", Leslie Wayne, New York Times, May 11, 2009

^ abLucchetti, Aaron and; Serena Ng (April 20, 2010). "Abacus Deal: As Bad as They Come". Wall Street Journal. Retrieved 9 February 2014. Abacus 2007-AC1, the mortgage deal at the center of Friday's civil-fraud lawsuit against Goldman Sachs Group Inc., ... also boasts another dubious distinction: It was one of the worst-performing mortgage deals of the housing crisis, based on one measure of rating-firm downgrades. Less than a year after the deal was completed, 100% of the bonds selected for Abacus had been downgraded, according to a February 2008 report by Wachovia Capital Markets, since acquired by Wells Fargo & Co.

^Gretchen Morgenson; Louise Story (23 December 2009). "Banks Bundled Bad Debt, Bet Against It and Won". New York Times. [Goldman] used the C.D.O.'s to place unusually large negative bets that were not mainly for hedging purposes

^McLean and Nocera. All the Devils Are Here. p. 271. But the firm's later insistence that it was merely a 'market maker' in these transactions—implying that it had no stake in the economic performance of the securities it was selling to clients—became less true over time.

^ abBethany McLean, Joe Nocera. All the Devils Are Here: The Hidden History of the Financial Crisis. p. 274. The CDO had been constructed, Goldman executives later told the Senate Permanent Subcommittee, while the company was trying to remove triple-B assets from its books. Among those assets was a long position in the ABX index that Goldman had gotten 'stuck' with while putting together deals for hedge fund clients that wanted to go short. Unable to find counterparties to take the long position off its hands, Goldman used Hudson as a means by which it hedged its long position. ... None of which was clear from the Hudson prospectus. Instead, the disclosure merely said that the CDO's contents were 'assets sourced from the Street,' making it sound as though Goldman randomly selected the securities, instead of specifically creating a hedge for its won book.

^ abBethany McLean, Joe Nocera. All the Devils Are Here: The Hidden History of the Financial Crisis. pp. 280–1. ... IKB also created a structured investment vehicle called Rhinebridge. Rhinebridge, like other SIVs, issued debt that it then used to buy mortgage-backed securities and CDOs like Abacus. The debt issued by Rhinebridge, ... was bought by among others, King County, Washington, which managed money on behalf of one hundred other public agencies. This was money used to run schools and fix potholes and fund municipal budgets . ... For all of Goldman's later claims that it dealt only with the most sophisticated of investors, the fact remained that those investors could be fiduciaries, investing on behalf of school districts, fire departments, pensioners, and municipalities all across the country.

^Nathaniel Popper (April 29, 2010). "Main St. paid for Wall St. maneuvers". Los Angeles Times. a German bank known as IKB, paid for its share of the deal with money it collected from a number of relatively unsophisticated investors including King County in Washington state. In 2007, the county bought US$100 million of commercial paper, a type of short-term debt, from Rhineland, a special fund created by IKB that in turn snapped up nearly US$150 million of the securities created by the Goldman vehicle known as Abacus 2007-AC1. ... [King County also made a] US$50-million purchase ... in 2007 from another IKB fund, dubbed Rhinebridge. The county lost US$19 million when Rhinebridge collapsed—and an additional US$54 million when other similar funds defaulted. About 100 county agencies in the Seattle area, including some that deal with libraries and schools, saw their budgets cut as a result.

^Wang, Marian (April 29, 2010). "Banks Pressured Credit Agencies, Then Blamed Them". ProPublica. Retrieved 18 February 2014. Goldman and other firms often seemed to have pressured the agencies to give good ratings. E-mails released last week by the Senate investigations subcommittee give a glimpse of the back-and-forth (PDF). "I am getting serious pushback from Goldman on a deal that they want to go to market with today," wrote one Moody's employee in an internal e-mail message in April 2006. The Senate subcommittee found that rating decisions were often subject to concerns about losing market share to competitors. The agencies are, after all, paid by the firms whose products they rate.

^ abWilchins, Dan (April 16, 2010). "Factbox: How Goldman's ABACUS deal worked". April 16, 2010 (Reuters). Retrieved 9 February 2014. Hedge fund manager John Paulson tells Goldman Sachs in late 2006 he wants to bet against risky subprime mortgages using derivatives. The risky mortgage bonds that Paulson wanted to short were essentially subprime home loans that had been repackaged into bonds. The bonds were rated "BBB," meaning that as the home loans defaulted, these bonds would be among the first to feel the pain.

^The $15 million has been described as "rent" for the Abacus name.Bethany McLean, Joe Nocera. All the Devils Are Here: The Hidden History of the Financial Crisis. p. 279. Paulson knocked on Goldman's door at a fortuitous moment. The firm had begun thinking about 'ABACUS-renal strategies' ... By that, he meant that Goldman would 'rent'—for a hefty fee—the Abacus brand to a hedge fund that wanted to make a massive short bet. ... Paulson paid Goldman $15 million to rent the Abacus name.

^"Goldman's misleading statement on ACA". Reuters. April 19, 2010. when Goldman wrapped the super-senior tranche of the Abacus deal, it did so with ABN Amro, a too-big-to-fail bank, and not with ACA. ABN Amro then laid off that risk onto ACA, but was on the hook for all of it if ACA went bust. As, of course, it did.

^THOMAS Jr., LANDON (April 22, 2010). "A Routine Deal Became an $840 Million Mistake". New York Times. Retrieved 11 February 2014. R.B.S. [Royal Bank of Scotland] became involved in Abacus almost by accident. Bankers working in London for ABN Amro, a Dutch bank that was later acquired by R.B.S., agreed to stand behind a portfolio of American mortgage investments that were used in the deal. ABN Amro shouldered almost all of the risks for what, in retrospect, might seem like a small reward: that $7 million. When the housing market fell and Abacus collapsed, R.B.S. ended up on the hook for most of the losses.

^"SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages (Press release)". US Securities and Exchange Commission. April 16, 2010. Retrieved 3 February 2014.

^Zuckerman, Gregory (April 19, 2010). "Inside Paulson's Deal with Goldman". Daily Beast. Retrieved 6 February 2014. Scott Eichel, a senior Bear Stearns trader, was among those at the investment bank who sat through a meeting with Paulson but later turned down the idea. He worried that Paulson would want especially ugly mortgages for the CDOs, like a bettor asking a football owner to bench a star quarterback to improve the odds of his wager against the team. Either way, he felt it would look improper. ... it didn't pass the ethics standards; it was a reputation issue, and it didn't pass our moral compass.

^ ab"The Goldman case: Legal or illegal, the Abacus deal was morally wrong. Wall Street needs a new compass". Houston Chronicle. April 22, 2010. Retrieved 9 February 2014. The involvement of European interests as losers in this allegedly fixed game has attracted the attention of that region's political leaders, most notably British Prime Minister Gordon Brown, who has accused Goldman of "moral bankruptcy". This is, in short, a big global story ... Is what Goldman Sachs did with its Abacus investment vehicle illegal? That will be for the courts to decide, ... But it doesn't take a judge and jury to conclude that, legalities aside, this was just wrong.

^Leising, Matthew; Silla Brush. "Big Banks Bet Crude Oil Prices Would Fall in 2008 Run-Up, Leaked Data Show". August 28, 2011 (Bloomberg). Retrieved 23 February 2014. Just before crude oil hit its record high in mid-2008, 15 of the world’s largest banks were betting that prices would fall, according to private trading data released by U.S. Senator Bernie Sanders. The net positions of the banks undermine arguments made by Sanders that speculative trades on Wall Street drove oil prices in 2008, said Craig Pirrong, director of the Global Energy Management Institute at the University of Houston. Retail gasoline reached a record $4.08 a gallon on July 7, 2008, and oil peaked at $147.27 a barrel on July 11 that year.

References

See also

Global Economics Paper No: 93 (South Africa Growth and Unemployment: A Ten-Year Outlook): Makes economic projections for South Africa for the next 10 years. Published on May 13, 2003.

Global Economics Paper No: 66 (The World Needs Better Economic BRICs): Introduced the BRIC concept, which became highly popularized in the media and in economic research from this point on. Also made economic projections for 2050 for the G7 and South Africa as well. These were the first long-term economic projections which covered the GDP of numerous countries. Published on October 1, 2003.[264]

Global Economics Paper No: 134 (How Solid are the BRICs): Introduced the Next Eleven concept. Published on December 1, 2005.[265]

Global Economics Paper No: 173 (New EU Member States—A Fifth BRIC?): Makes 2050 economic projections for the new EU member states as a whole. Published on September 26, 2008.[266]

Global Economics Paper No: 188 (A United Korea; Reassessing North Korea Risks (Part I): Makes 2050 economic projections for North Korea in the hypothetical event that North Korea makes large free-market reforms right now. Published on September 21, 2009.[267]

The Olympics and Economics 2012: Makes projections for the number of gold medals and told Olympic medals that each country wins at the 2012 Olympics using economic data and previous Olympic data. Published in 2012.[268]

Here is a list of notable Goldman Sachs research papers:

Goldman Sachs research papers

Goldman Sachs's global headquarters is located in New York City at 200 West Street. Its European headquarters are in London and its Asian headquarters are in Singapore, Tokyo and Hong Kong. Other major offices are in Jersey City, Bangalore, and Salt Lake City.[263]

List of officers and directors

In January 2014, the Libyan Investment Authority (LIA) filed a lawsuit against Goldman for $1 billion after the firm lost of 98% of the $1.3 billion the LIA invested with Goldman in 2007.[259][260] Goldman made more than $1 billion in derivatives trades with the LIA funds which lost almost all their value but earned Goldman $350 million in profit.[261] In August 2014 Goldman dropped a bid to end the suit in a London court.[259]

Libya investment losses

Goldman Sachs's purchase of an 18% stake in state-owned Dong Energy—Denmark's largest electric utility—set off a "political crisis" in Denmark. The sale—approved in January 30, 2014—sparked protest in the form of the resignation of six cabinet ministers and the withdrawal of a party (Socialist People's Party) from Prime Minister Helle Thorning-Schmidt's leftist governing coalition.[258] According to Bloomberg Businessweek, "the role of Goldman in the deal struck a nerve with the Danish public, which is still suffering from the aftereffects of the global financial crisis." Protesters in Copenhagen gathered around a banner "with a drawing of a vampire squid—the description of Goldman used by Matt Taibbi in Rolling Stone in 2009".[258] Opponents expressed concern that Goldman would have some say in Dong's management, and that Goldman planned to manage its investment through "subsidiaries in Luxembourg, the Cayman Islands, and Delaware, which made Danes suspicious that the bank would shift earnings to tax havens."[258]

Danish utility sale

Fraud related to trading losses and concealment of futures positions in 2007 resulted in $1.5 million in penalties paid by the firm to regulators in 2012. The penalties were for not properly supervising trader Matthew Marshall Taylor. Taylor himself was expected to plead guilty to criminal charges when he surrendered to the FBI in 2013.[256][257]

Taylor-related civil and criminal cases

Goldman Sachs is accused of asking for kickback bribes from institutional clients who made large profits flipping stocks which Goldman had intentionally undervalued in initial public offerings it was underwriting. Documents under seal in a decade-long lawsuit concerning eToys.com's initial public offering (IPO) in 1999 but released accidentally to the New York Times show that IPOs managed by Goldman were underpriced and that Goldman asked clients able to profit from the prices to increase business with it. The clients willingly complied with these demands because they understood it was necessary in order to participate in further such undervalued IPOs.[254] Companies going public and their initial consumer stockholders are both defrauded by this practice.[255]

Initial public offering kickback bribes

and "by 2008, eight investment banks accounted for 32% of the total oil futures market."[253]

just a few years after oil futures began trading on the New York Mercantile Exchange, Goldman Sachs made an argument to the Commodity Futures Trading Commission that Wall Street dealers who put down big bets on oil should be considered legitimate hedgers and granted an exemption from regulatory limits on their trades. The commission granted an exemption that ultimately allowed Goldman Sachs to process billions of dollars in speculative oil trades. Other exemptions followed[253]

According to Joseph P. Kennedy II, by 2012, prices on the oil commodity market had become influenced by "hedge funds and bankers" pumping "billions of purely speculative dollars into commodity exchanges, chasing a limited number of barrels and driving up the price".[253] The problem started, according to Kennedy, in 1991, when

It stated that "Goldman Sachs told its clients that it believed speculators like itself had artificially driven the price of oil at least $20 higher than supply and demand dictate."[250] Sherter noted that Goldman's concern over speculation did not prevent it (along with other speculators) from lobbying against regulations by the Commodity Futures Trading Commission to establish "position limits", which would cap the number of futures contracts a trader can hold, and thus prevent speculation.[251]

In April 2011, a couple of observers—Brad Johnson of the blog Climate Progress[250] and Alain Sherter of CBS News MoneyWatch[251]—noted that Goldman Sachs was warning investors of a dangerous spike in the price of oil. Climate Progress quoted Goldman as warning "that the price of oil has grown out of control due to excessive speculation” in petroleum futures, and that “net speculative positions are four times as high as in June 2008.” when the price of oil peaked.[252]

Investment banks, including Goldman, have also been accused of driving up the price of petrol/gasoline by speculating in the oil futures market. In August 2011, "confidential documents" were leaked "detailing the positions"[247] in the oils futures market of several investment banks[248]—including Goldman Sachs—on one day (June 30, 2008), just before the peak in high petrol/gasoline prices. The presence of positions by investment banks on the market was significant for the fact that the banks have deep pockets, and so the means to significantly sway prices, and unlike traditional market participants, neither produced oil nor ever took physical possession of actual barrels of oil they bought and sold. It was "a development that many say is artificially raising the price of crude" according to Kate Sheppard of Mother Jones.[247] However another source states "Just before crude oil hit its record high in mid-2008, 15 of the world’s largest banks were betting that prices would fall, according to private trading data...."[249]

Oil futures speculation

Michael DuVally, a spokesman for Goldman Sachs, has said the cases are without merit[240] and Robert Lenzner at Forbes says Goldman's control is only 3% of the global market and so too small to give it pricing power.[246]

According to Lydia DePillis of Wonkblog, when Goldman bought the warehouses it "started paying traders extra to bring their metal" to Goldman's warehouses "rather than anywhere else. The longer it stays, the more rent Goldman can charge, which is then passed on to the buyer in the form of a premium."[244][245] The effect is "amplified" by another company in the Netherlands (Glencore) is "doing the same thing in its warehouse in Vlissingen".[245]

To avoid hoarding and price manipulation, the London Metal Exchange requires that "at least 3,000 tons of that metal must be moved out each day". Goldman has dealt with this requirement by moving the aluminum—not to factories, but "from one warehouse to another"—according to the Times.[135]

"Aluminum industry analysts say that the lengthy delays at Metro International since Goldman took over are a major reason the premium on all aluminum sold in the spot market has doubled since 2010."[135] The price increase has cost "American consumers more than $5 billion"[243] according to former industry executives, analysts and consultants.[135]

The cause of this was alleged to be Goldman's ownership of a quarter of the national supply of aluminum—a million and a half tons—in network of 27 Metro International warehouses Goldman owns in Detroit, Michigan.[135][242]

Following Goldman's purchase of the aluminum warehousing company Metro International[241] in 2010, the wait of warehouse customers for delivery of aluminum supplies to their factories—to make beer cans, home siding and other products—went from an average of six weeks to more than 16 months, "according to industry records."[126][135]

Aluminum price and supply

Goldman Sachs Commodity Index and the 2005–2008 Food Bubble

Some critics (such as Matt Taibbi) believe that allowing a company to both "control the supply of crucial physical commodities, and also trade in the financial products that might be related to those markets," is "akin to letting casino owners who take book on NFL games during the week also coach all the teams on Sundays."[233]New York Times journalist David Kocieniewski accused Goldman Sachs (and other Wall Street firms) of "capitalizing on loosened federal regulations" to manipulate "a variety of commodities markets", citing "financial records, regulatory documents and interviews with people involved in the activities." (The commodity highlighted by Kocieniewski and also mentioned Taibbi also mentioned was aluminum.[135])

A provision of the 1999 financial deregulation law, the Gramm-Leach-Bliley Act, allows commercial banks to enter into any business activity that is "complementary to a financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally."[233] In the years since the laws passing, Goldman Sach and other investment banks (Morgan Stanley, JPMorgan Chase) have branched out into ownership of a wide variety of enterprises including raw materials, such as food products, zinc, copper, tin, nickel and, aluminum.

Alleged commodity price manipulation

Tourre unsuccessfully sought a dismissal of the suit[229][230][231][232] which then went to trial in 2013. On August 1, jurors found Tourre guilty of six of seven charges—including that he misled investors about the mortgage deal.[194]

The 2010 Goldman settlement did not cover charges against Goldman vice president and salesman for ABACUS,[204] Fabrice Tourre.[117]

On April 14, 2011, the United States Senate's Permanent Subcommittee on Investigations released a 635-page report entitled, Wall Street and the Financial Crisis: Anatomy of a Financial Collapse which described some of the causes of the financial crisis. The report alleged that Goldman Sachs may have misled investors and profited from the collapse of the mortgage market at their expense.[225] The Chairman of the Subcommittee referred the report to the U.S. Department of Justice to determine whether Goldman executives had broken the law,[226] and two months later the Manhattan district attorney subpoenaed Goldman for relevant information on possible securities fraud,[114][227] but on August 9 the Justice Department announced it had decided not to file charges against Goldman Sachs or its employees for trades made during the subprime mortgage portfolio.[228]

Other prosecutorial actions

In the end, SEC suit did not go to court.[224] On July 15, 2010, three months after it filing, Goldman agreed to pay US$550 million—US$300 million to the U.S. government and US$250 million to investors, one of the largest penalties ever paid by a Wall Street firm.[117] The company did not admit or deny wrongdoing, but did admit that its marketing materials for the investment "contained incomplete information", and agreed to change some of its business practices regarding mortgage investments.[117]

Critics also worry about the attention drawn in Europe to the losses of European banks that might undermine the position of the US "as a safe harbor for the world's investors."[221]

Critics also question whether the deal was ethical, even if it was legal.[201][221] Goldman had considerable advantages over its long customers. According to McLean and Nocera there were dozens of securities being insured in the CDO—for example, another ABACUS[222]—had 130 credits from several different mortgage originators, commercial mortgage-backed securities, debt from Sallie Mae, credit cards, etc. Goldman bought mortgages to create securities, which made it "far more likely than its clients to have early knowledge" that the housing bubble was deflating and the mortgage originators like New Century had begun to falsify documentation and sell mortgages to customers unable to pay the mortgage-holders back[223]—which is why the fine print on at least one ABACUS prospectus warned long investors that the 'Protection Buyer' (Goldman) 'may have information, including material, non-public information' which it was not providing to the long investors.[223]

Critics of Goldman Sachs point out that Paulson went to Goldman Sachs after being turned down for ethical reasons by another investment bank, Bear Stearns who he had asked to build a CDO for him. Ira Wagner, the head of Bear Stearns’s CDO Group in 2007, told the Financial Crisis Inquiry Commission that having the short investors select the referenced collateral as a serious conflict of interest and the structure of the deal Paulson was proposing encouraged Paulson to pick the worst assets.[218][219] Describing Bear Stearns's reasoning, one author compared the deal to "a bettor asking a football owner to bench a star quarterback to improve the odds of his wager against the team."[220] Goldman claimed it lost US$90 million, critics maintain it was simply unable (not due to a lack of trying) to shed its position before the underlying securities defaulted.[204]

Some experts on securities law (such as Duke University law professor James Cox), believed the suit had merit because Goldman was aware of the relevance of Paulson's involvement and took steps to downplay it. Others, (including Wayne State University law professor Peter Henning), noted that the major purchasers were sophisticated investors capable of accurately assessing the risks involved, even without knowledge of the part played by Paulson.[217]

While some journalists and analysts have called these statements misleading,[213] others believed Goldman's defense was strong and the SEC's case was weak.[214][215][216]

In reply Goldman issued a statement saying the SEC's charges were "unfounded in law and fact", and in later statements maintained that it had not structured the portfolio to lose money,[211] that it had provided extensive disclosure to the long investors in the CDO, that it had also lost money (US$90 million), that ACA selected the portfolio without Goldman suggesting Paulson was to be a long investor, that it did not disclose the identities of a buyer to a seller and vice versa as it was not normal business practice for a market maker,[211] and that ACA was itself the largest purchaser of the Abacus pool, investing US$951 million. Goldman also stated that any investor losses resulted from the overall negative performance of the entire sector, rather than from a particular security in the CDO.[211][212]

The SEC alleged that Goldman "materially misstated and omitted facts in disclosure documents" about the financial security,[115] including the fact that it had "permitted a client that was betting against the mortgage market [the hedge fund manager Paulson & Co.] to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party," ACA Management.[208][210] The SEC further alleged that "Tourre also misled ACA into believing ... that Paulson's interests in the collateral section [sic] process were aligned with ACA's, when in reality Paulson's interests were sharply conflicting."[208]

The particular synthetic CDO that the SEC's 2010 fraud suit charged Goldman with misleading investors with was called Abacus 2007-AC1. Unlike many of the Abacus securities, 2007-AC1 did not have Goldman Sachs as a short seller, in fact it lost money on the deal.[204] That position was taken by the customer (John Paulson) who hired Goldman to issue the security (according to the SEC's complaint). Paulson and his employees selected 90 BBB-rated mortgage bonds[192][205] that they believed were most likely to lose value and so the best bet to buy insurance for.[117] Paulson and the manager of the CDO, ACA Management, worked on the portfolio of 90 bonds to be insured (ACA allegedly unaware of Paulson's short position), coming to an agreement in late February 2007.[205] Paulson paid Goldman approximately US$15 million for its work in the deal.[206] Paulson ultimately made a US$1 billion from the short investments, the profits coming from the losses of the investors and their insurers. These were primarily IKB Deutsche Industriebank (US$150 million loss), and the investors and insurers of another US$900 million—ACA Financial Guaranty Corp,[207]ABN Amro, and the Royal Bank of Scotland.[208][209]

2010 SEC civil fraud lawsuit

Goldman is also alleged to have tried to pressure the credit rating service [128][203]

In public statements Goldman claimed that it shorted simply to hedge and was not expecting the CDOs to fail. It also denied that its investors were unaware of Goldman's bets against the products it was selling to them.[128]

Critics also complain that while Goldman's investors were large, ostensibly sophisticated banks and insurers, at least some of the CDO securities and their losses filtered down to small public agencies—"money used to run schools and fix potholes and fund municipal budgets"[201]—via debt sold by a structured investment vehicle of IKB bank, an ABACUS investor.[202]

But while Goldman was praised for its foresight, some argued its bets against the securities it created gave it a vested interest in their failure. These securities performed very poorly (for the long investors) and by April 2010, Bloomberg reported that at least US$5 billion worth of the securities either carried "junk" ratings, or had defaulted.[199] One CDO examined by critics which Goldman bet against, but also sold to investors, was the US$800 million Hudson Mezzanine CDO issued in 2006. Goldman executives stated that the company was trying to remove subprime securities from its books in the Senate Permanent Subcommittee hearings. Unable to sell them directly it included them in the underlying securities of the CDO and took the short side, but critics (McLean and Nocera) complained the CDO prospectus did not explain this but described its contents as "'assets sourced from the Street', making it sound as though Goldman randomly selected the securities, instead of specifically creating a hedge for its own book."[200] The CDO did not perform well and by March 2008—just 18 months after its issue—so many borrowers had defaulted that holders of the security paid out "about US$310 million to Goldman and others who had bet against it".[128] Goldman's head of European fixed-income sales lamented in an email made public by the Senate Permanent Subcommittee on Investigations, the "real bad feeling across European sales about some of the trades we did with clients" who had invested in the CDO. "The damage this has done to our franchise is very significant."[200]

Through April 2007 Goldman issued over 20 CDOs in its "Abacus" series[197] worth a total of US$10.9 billion. All together Goldman packaged, sold, and shorted a total of 47 synthetic CDOs, with an aggregate face value of US$66 billion between July 1, 2004, and May 31, 2007.[198]

The complex securities were known as synthetic CDOs (collateralized debt obligations). They were called synthetic because unlike regular CDOs, the principle and interest they paid out came not from mortgages or other loans, but from premiums to pay for insurance against mortgage defaults—the insurance known as "credit default swaps". Goldman and some other hedge funds held a "short" position with the securities, paying the premiums, while the investors (insurance companies, pension funds, etc.) receiving the premiums were the "long" position. The longs were responsible for paying the insurance "claim" to Goldman and any other shorts if the mortgages or other loans defaulted.

In April 2010, the SEC charged Goldman Sachs and one of its vice presidents, Fabrice Tourre, with securities fraud. The SEC alleged that Goldman had told buyers of one of its investment deals (a type called a "synthetic CDO"), that the underlying assets in the deal had been picked by an independent CDO manager, ACA Management. In fact, a short investor betting that the CDO would default (Paulson & Co. hedge fund group) had played a "significant role" in the selection,[115] and the package of securities turned out to become "one of the worst-performing mortgage deals of the housing crisis".[192] On July 15, 2010, Goldman settled, agreeing to pay the SEC and investors US$550 million.[117] In August 2013 Tourre was found liable on six of seven counts by a federal jury.[193][194]

Abacus mortgage-backed CDOs

On May 10, 2009, the Goldman Sachs Group agreed to pay up to $60 million to end an investigation by the Massachusetts attorney general’s office into whether the firm helped promote unfair home loans in the state. The settlement will be used to reduce the mortgage payments of 714 Massachusetts residents who had secured subprime mortgages funded by Goldman Sachs. Michael DuVally, a spokesman for Goldman, said it was “pleased to have resolved this matter,” and declined to comment further. This settlement may open the door to state government actions against Goldman throughout the United States aimed at securing compensation for predatory mortgage lending practices.[191]

$60 million settlement for Massachusetts subprime mortgages

According to the New York Times, Paulson spoke with the CEO of Goldman Sachs two dozen times during the week of the bailout, though he obtained an ethics waiver before doing so.[190] While it is common for regulators to be in contact with market participants to gather valuable industry intelligence, particularly in a crisis, the Times noted he spoke with Goldman's Blankfein more frequently than with other large banks. Federal officials say that although Paulson was involved in decisions to rescue A.I.G, it was the Federal Reserve that played the lead role in shaping and financing the A.I.G. bailout.[190]

[189] the Wall Street chief executives at the meeting" (emphasis added). one of The article was later corrected to state that Blankfein, CEO of Goldman Sachs, was "[185] article.New York Times that Goldman Sachs received preferential treatment from the government by being the only Wall Street firm to have participated in the crucial September meetings at the New York Fed, which decided AIG's fate. Much of this has stemmed from an inaccurate but often quoted [184]
Some have said, incorrectly according to others,

Final AIG meetings on September 15 at the New York Federal Reserve

Goldman argues that CDSs are marked to market (i.e. valued at their current market price) and their positions netted between counterparties daily. Thus, as the cost of insuring AIG's obligations against default rose substantially in the lead-up to its bailout, the sellers of the CDS contracts had to post more collateral to Goldman Sachs. The firm claims this meant its hedges were effective and the firm would have been protected against an AIG bankruptcy and the risk of knock-on defaults, had AIG been allowed to fail.[180] However, in practice, the collateral would not protect fully against losses both because protection sellers would not be required to post collateral that covered the complete loss during a bankruptcy and because the value of the collateral would be highly uncertain following the repercussions of an AIG bankruptcy. As with the bankruptcy of Lehman Brothers, wider and longer-term systemic and economic turmoil brought on by an AIG default would probably have affected the firm and all other market participants.

Considerable speculation remains that Goldman's hedges against their AIG exposure would not have paid out if AIG was allowed to fail. According to a report by the United States Office of the Inspector General of TARP, if AIG had collapsed, it would have made it difficult for Goldman to liquidate its trading positions with AIG, even at discounts, and it also would have put pressure on other counterparties that "might have made it difficult for Goldman Sachs to collect on the credit protection it had purchased against an AIG default."[183] Finally, the report said, an AIG default would have forced Goldman Sachs to bear the risk of declines in the value of billions of dollars in collateral debt obligations.

Goldman Sachs has maintained that its net exposure to AIG was 'not material', and that the firm was protected by hedges (in the form of CDSs with other counterparties) and $7.5 billion of collateral.[179] The firm stated the cost of these hedges to be over $100M.[180] According to Goldman, both the collateral and CDSs would have protected the bank from incurring an economic loss in the event of an AIG bankruptcy (however, because AIG was bailed out and not allowed to fail, these hedges did not pay out.)[181] CFO David Viniar stated that profits related to AIG in Q1 2009 "rounded to zero", and profits in December were not significant. He went on to say that he was "mystified" by the interest the government and investors have shown in the bank's trading relationship with AIG.[182]

Firm's response to criticism of AIG payments

In March 2009, it was reported that, in 2008, Goldman Sachs, (alongside other major US and international financial institutions), had received billions of dollars during the unwind of credit default swap (CDS) contracts purchased from AIG, including $12.9 billion from funds provided by the US Federal Reserve to bail out AIG.[174][175][176] (As of April, 2009, US Government loans to AIG totaled over $180 billion). The money was used to repay customers of its security-lending program and was paid as collateral to counterparties under credit insurance contracts purchased from AIG. However, due to the size and nature of the payouts there was considerable controversy in the media and amongst some politicians as to whether banks, including Goldman Sachs, may have benefited materially from the bailout and if they had been overpaid.[111][177] The New York State Attorney GeneralAndrew Cuomo announced in March 2009 that he was investigating whether AIG's trading counterparties improperly received government money.[178]

Most financial analysts and the mainstream financial press (Bloomberg L.P., Reuters, etc), aware of the accounting change and deteriorating market conditions into December, were unsurprised by the December loss (Merrill Lynch took at least $8.1B of losses in the same period).[167] However, their lack of reaction and reporting of what was a widely expected result may have contributed to the surprise attributing this as a sign that the firm was trying to hide losses in December. On the contrary, the results of December 2008 were discussed up front and in detail by CFO David Viniar in the first few minutes of the firm's Q1 2009 conference call, and were fully declared on page 10 of its earnings release document.[162][168]

The accounting change to a calendar fiscal year, which created the stub month, was required when the firm converted to a bank holding company and declared in Item 5.03 of its Form 8-KU.S. Securities and Exchange Commission (SEC) filing of December 15, 2008.[164] The December loss also included a $850M writedown on loans to bankrupt chemical maker LyondellBasell, as reported in late December (the chemical maker formally declared bankruptcy on January 6 but the loan would have been marked-to-market – it became clear in mid/late-December that Lyondell would not be able to meet its debt obligations).[165][166]

In April 2009, there was controversy that Goldman Sachs had "puffed up" its Q1 earnings by creating a December "orphan month" into which it shifted large writedowns, so they did not appear in any "quarterly number"[161]—a notification that was legal but some felt misleading.[111] In its first full quarter as a bank holding company, the firm reported a $780M net loss for the single month of December alongside Q1 net earnings of $1.81B (Jan–Mar)[162][163]

First Quarter 2009 and December 2008 financial results

Gupta was convicted in June 2012 on insider trading charges stemming from Galleon Group case on four criminal felony counts of conspiracy and securities fraud. He was sentenced in October 2012 to two years in prison, an additional year on supervised release and ordered to pay $5 million in fines.[160]

In April 2010, Goldman director Rajat Gupta was named in an insider-trading case. It was said Gupta had "tipped off a hedge-fund billionaire", Raj Rajaratnam of Galleon Group, about the $5 billion Berkshire Hathaway investment in Goldman in September, 2008. According to the report, Gupta had told Goldman the month before his involvement became public that he wouldn't seek re-election as a director.[134] In early 2011, with the delayed Rajaratnam criminal trial about to begin,[158] the United States Securities and Exchange Commission (SEC) announced civil charges against Gupta covering the Berkshire investment as well as confidential quarterly earnings information from Goldman and Procter & Gamble (P&G). Gupta was board member at P&G until voluntarily resigning the day of the SEC announcement, after the charges were announced. "Gupta was an investor in some of the Galleon hedge funds when he passed the information along, and he had other business interests with Rajaratnam that were potentially lucrative.... Rajaratnam used the information from Gupta to illegally profit in hedge fund trades.... The information on Goldman made Rajaratnam's funds $17 million richer.... The Proctor & Gamble data created illegal profits of more than $570,000 for Galleon funds managed by others, the SEC said." Gupta was said to have "vigorously denied the SEC accusations". He is also a board member of AMR Corp.[159]

Insider trading cases

Media reports in May 2009 concerning Friedman's involvement with Goldman, and in particular, his purchase of the firm's stock when it traded at historical lows in the fourth quarter of 2008,[153] fueled controversy and criticism over what was seen as a conflict of interest in Friedman's new role as supervisor and regulator to Goldman Sachs. These events prompted his resignation on May 7, 2009. Although Friedman's purchases of Goldman stock did not violate any Fed rule, statute, or policy, he said that the Fed did not need this distraction. He also stated his purchases, made while approval of a waiver was pending, were motivated by a desire to demonstrate confidence in the company during a time of market distress.[155]

Stephen Friedman, a former director of Goldman Sachs, was named Chairman of the Federal Reserve Bank of New York in January 2008. Although he had retired from Goldman in 1994, Friedman continued to own stock in the firm. Goldman's conversion from a securities firm to a bank holding company in September 2008 meant it was now regulated by the Fed and not the SEC. When it became apparent that Timothy Geithner, then president of the New York Fed, would leave his role there to become Treasury Secretary, Friedman was granted a temporary one-year waiver of a rule that forbids "class C" directors of the Fed from direct interest with those it regulates. Friedman agreed to remain on the board until the end of 2009 to provide continuity in the wake of the turmoil caused by Lehman Brothers' bankruptcy. Had the waiver not been granted, the New York Fed would have lost both its president and its chairman (or Friedman would have had to divest his Goldman shares).[153] This would have been highly disruptive for the New York Fed's role in the capital markets, and Friedman later said he agreed to stay on the NY Fed board out of a sense of public duty, but that his decision was "being mischaracterised as improper".[154]

Former New York Fed Chairman's ties to the firm

During 2008 Goldman Sachs received criticism for an apparent revolving door relationship, in which its employees and consultants have moved in and out of high level U.S. Government positions, creating the potential for conflicts of interest. The large number of former Goldman Sachs employees in the US government has been jokingly referred to "Government Sachs".[133] Former Treasury Secretary Paulson is a former CEO of Goldman Sachs. Additional controversy attended the selection of former Goldman Sachs lobbyistMark Patterson as chief of staff to Treasury Secretary Timothy Geithner, despite President Barack Obama's campaign promise that he would limit the influence of lobbyists in his administration.[151] In February 2011, the Washington Examiner reported that Goldman Sachs was "the company from which Obama raised the most money in 2008" and that its "CEO Lloyd Blankfein has visited the White House 10 times."[152]

Personnel "revolving-door" with US government

On November 11, 2008, the Los Angeles Times reported that Goldman Sachs had both earned $25 million from underwriting California bonds, and advised other clients to short those bonds.[148] While some journalists criticized the contradictory actions,[149] others pointed out that the opposite investment decisions undertaken by the underwriting side and the trading side of the bank were normal and in line with regulations regarding Chinese walls, and in fact critics had demanded increased independence between underwriting and trading.[150]

California bonds

In 2010, two former female employees filed a lawsuit against Goldman Sachs for gender discrimination. Cristina Chen-Oster and Shanna Orlich claimed that the firm fostered an "uncorrected culture of sexual harassment and assault" causing women to either be "sexualized or ignored". The suit cited both cultural and pay discrimination including frequent client trips to strip clubs, client golf outings that excluded female employees, and the fact that female vice presidents made 21% less than their male counterparts.[147]

Cristina Chen-Oster and Shanna Orlich Lawsuit

In 2014 a book by former Goldman portfolio manager

What Happened to Goldman Sachs by Steven Mandis

According to the New York Times‍ '​ own research after the op-ed was printed, almost all the claims made in Smith's incendiary Op-Ed–about Goldman Sachs's turned out to be "curiously short" on evidence. The New York Times never issued a retraction or admit to any error in judgment in initially publishing Smith's op-ed.[143]

In his March 2012 resignation letter, printed as an op-ed in The New York Times, the former head of Goldman Sachs US equity derivatives business in Europe, the Middle East and Africa (EMEA) attacked the company's CEO and president for losing the company's culture, which he described as "the secret sauce that made this place great and allowed us to earn our clients' trust for 143 years". Smith said that advising clients "to do what I believe is right for them" was becoming increasingly unpopular. Instead there was a "toxic and destructive" environment in which "the interests of the client continue to be sidelined", senior management described clients as "muppets" and colleagues callously talked about "ripping their clients off".[130][131] In reply, Goldman Sachs said that "we will only be successful if our clients are successful", claiming "this fundamental truth lies at the heart of how we conduct ourselves" and that "we don't think [Smith's comments] reflect the way we run our business."[141] Later that year, Smith published a book titled Why I left Goldman Sachs.[142]

Greg Smith resignation letter

Employee's Views

Goldman is being criticized for its involvement in the 2010 International Monetary Fund in 2010–2011 and responsible for most of enterprise privatizations in Portugal since 2011, is the former Vice Chairman of Goldman Sachs International.[140]Carlos Moedas, a former Goldman Sachs employee, is the current Secretary of State to the Prime Minister of Portugal and Director of ESAME, the agency created to monitor and control the implementation of the structural reforms agreed by the government of Portugal and the troika composed of the European Commission, the European Central Bank and the International Monetary Fund. Peter Sutherland, former Attorney General of Ireland is a non-executive director of Goldman Sachs International. These ties between Goldman Sachs and European leaders are an ongoing source of controversy.[140]

Involvement in the European sovereign debt crisis

In 2000, Goldman Sachs advised Dragon Systems on its sale to the Belgian company, Lernout & Hauspie. L&H later collapsed due to accounting fraud. Jim and Janet Baker, founders and together 50% owners of Dragon, filed a lawsuit against Goldman Sachs, alleging that the firm did not warn Dragon or the Bakers of the accounting problems of the acquirer, and that this led to the loss of their portion of the sale price of $580 million, which was paid entirely in the form of the acquirer's stock. On January 23, 2013 a federal jury rejected the Bakers’ claims and found Goldman Sachs not liable to the Bakers for negligence, intentional and negligent misrepresentation, and breach of fiduciary duty.[136]

Sale of Dragon Systems to Lernout & Hauspie

Goldman has also been accused of an assortment of other misdeeds, varying from a general decline in ethical standards,[130][131] working with dictatorial regimes,[132] cozy relationships with the US federal government, via a "revolving door" of former employees[133]insider trading by some of its traders,[134] and driving up prices of commodities through futures speculation.[135] Goldman has denied wrongdoing in these cases.

Goldman Sachs has denied wrongdoing. It has stated that its customers were aware of its bets against the mortgage-related security products it was selling to them, and that it only used those bets to hedge against losses,[128] and was simply a market maker. The firm also promised a "comprehensive examination of our business standards and practices", more disclosure and better relationships with clients.[129]

But it has also been harshly criticized, particularly in the aftermath of the 2007–2012 global financial crisis where some alleged that it misled its investors and profited from the collapse of the mortgage market. That time — "one of the darkest chapters" in Goldman's history (according to the New York Times[114]) — brought investigations from the Congress, the Justice Department, and a lawsuit from the SEC[115][116]—to whom it agreed to pay $550 million to settle.[117] It was "excoriated by the press and the public" (according to journalists McLean and Nocera[118]) -- this despite the non-retail nature of its business that would normally have kept it out of the public eye.[119][120] Visibility and antagonism came from the $12.9 billion Goldman received—more than any other firm—from AIG counterparty payments provided by the New York Federal Reserve bailout; the $10 billion in TARP money it received from the government (though the firm paid this back to the government); and a record $11.4 billion set aside for employee bonuses in the first half of 2009.[121][122] While all the investment banks were scolded by congressional investigations, the company was subject to "a solo hearing in front of the Senate Permanent Subcommitee on Investigations" and a quite critical report.[119][123] In a widely publicized story,[124]Matt Taibbi in Rolling Stone characterized the firm as a "great vampire squid" sucking money instead of blood, allegedly engineering "every major market manipulation since the Great Depression ... from tech stocks to high gas prices"[124][125][126][127]

Goldman has received Global Finance's Global Award as the world's "Best Investment Bank" in 2012.[109] It has been described by business journalists Bethany McLean and Joe Nocera as the investment bank that "always seemed to be in the sweet spot of every market", so successful that it aroused the envy of other investment bankers.[110] In the 1980s its prestige was such that business school students thought of being hired by the firm "as the ultimate accomplishment", (according to Floyd Harris, the chief financial correspondent of the New York Times[111]), and "up to the 1990s", Goldman's reputation was "very high", to the point that "they were believed to be able to outperform everyone else in every way." (according to Suzanne McGee,[112] author of Chasing Goldman Sachs,[113])

Controversies

[108] extended not only the implementation schedule to 2019, but broadened the definition of liquid assets.Basel Committee on Banking Supervision On January 6, 2013 the global banking sector won a significant easing of Basel III Rules, when the [107] Others have argued that Basel III did not go far enough to regulate banks as inadequate regulation was a cause of the financial crisis.[106] saying that the Basel III proposals, if implemented, would hurt small banks by increasing "their capital holdings dramatically on mortgage and small business loans."[105]
Large American and European banks, including Goldman Sachs, Morgan Stanley, and Deutsche Bank are part of the Washington D.C.-based

Third Basel Accord

Goldman Sachs expected in December 2008 to pay $14 million in taxes worldwide for 2008 compared with $6 billion the previous year, after making $2.3 billion profit and paying $10.9 billion in employee pay and benefits. The company’s effective tax rate dropped to 1% from 34.1% in 2007, due to tax credits and, according to Goldman Sachs, "changes in geographic earnings mix" thus reducing the company's tax obligation.[97][98] Many critics argue that the reduction in Goldman Sach's tax rate was achieved by shifting its earnings to subsidiaries in low- or no-tax nations. Goldman Sachs had 28 such subsidiaries at the time, including 15 in the Cayman Islands.[99]

Tax obligation

In June 2013, Goldman Sachs launched its second social impact bond. This bond is a loan of up to $4.6 million for a childhood education program in Salt Lake City, Utah. The United Way of Salt Lake said that the investment deal, by Goldman Sachs and J.B. Pritzker, could potentially benefit up to 3,700 children over multiple years and save state and local government millions of additional dollars.[94][95][96]

In August 2012, Goldman Sachs created the first social impact bond in the United States. The “bond” is actually a $9.6 million loan to support the delivery of therapeutic services to 16- 18-year-olds incarcerated on Rikers Island. The loan will be repaid based on the actual and projected cost savings realized by the New York City Department of Correction as a result of the expected decrease in recidivism.[92][93]

Social impact bonds

The CEO of the Global Impact Investing Network (GIIN), Luther Ragin, wrote in an article published in Investment Europe, that impact investing is meeting financial and philanthropic expectations, and that during 2014 Goldman Sachs sponsored a $250 million Social Impact Fund.[89] Returns on the fund, which will be launched by the Urban Investment Group, are linked to the success of a variety of projects with high social value, including affordable housing projects, pre-school education, and an educational project for prisoners designed to reduce recidivism.[90] Between 2001 and 2014 over $3 billion of Goldman Sachs capital has been utilized for impact investing.[91]

Goldman invested $16 million to help build a 45,000 square-foot campus for 1,000 middle-school and high-school students in Lincoln Heights in Los Angeles for the Alliance College-Ready Public Schools charter system. The school opened in the fall of 2012.[87][88]

Goldman underwrote and managed the Grand Parkway System Toll Revenue Bond for the Houston, Texas area in 2013. The bond was valued at $2.9 billion and was issued to finance the Grand Parkway System which will join suburban communities to major roads. The improved parkway system will insure that the Houston area will be able to accommodate what is the fastest growing metropolitan area in the country.[85][86]

In 2013, Goldman Sachs developed a “junior banker task force” of executives from around the world to improve analysts’ work environment and career development.[84]

Goldman Sachs employees have been noted as highly loyal to their organization.[80][83]

In March 2008, Goldman launched the 10,000 Women initiative to train 10,000 women from predominantly developing countries in business and management.[81]

[80]
The company also has been on

Goldman Sachs has received favorable press coverage for conducting business and implementing internal policies related to reversing global climate change.[75] According to the company website, the Goldman Sachs Foundation has given $114 million in grants since 1999, with the goal of promoting youth education worldwide.[76]

During 2001-2009, the Goldman Sachs Global Leaders Program (GSGLP) identified 1,050 exceptional undergraduate students from 100 participating universities and colleges around the globe, awarded them "Global Leaders" in recognition of their academic excellence and leadership potential. Global Leaders study a diverse range of fields from economics to medical science. GSGLP alumni have gone on to win Rhodes, Truman, Marshall, Gates and Cambridge scholarships and Fulbright Fellowships.[74]

Corporate citizenship

According to Thomson Reuters league table data, Goldman Sachs was the most successful foreign investment bank in Malaysia from 2011-2013. In 2013, the bank took a 21 percent market share in Malaysia's investment banking segment, double that of its nearest rival.[73]

Major private equity assets

GS Capital Partners is the private equity arm of Goldman Sachs. It has invested over $17 billion in the 20 years from 1986 to 2006. One of the most prominent funds is the GS Capital Partners V fund, which comprises over $8.5 billion of equity.[68] On April 23, 2007, Goldman closed GS Capital Partners VI with $20 billion in committed capital, $11 billion from qualified institutional and high-net-worth clients and $9 billion from the firm and its employees. GS Capital Partners VI is the current primary investment vehicle for Goldman Sachs to make large, privately negotiated equity investments.[69]

GS Capital Partners

In September 2013, Goldman Sachs Asset Management announced it had entered into an agreement with Deutsche Asset & Wealth Management to acquire its stable value business, with total assets under supervision of $21.6 billion as of June 30, 2013.[67]

On September 14, 2011, Goldman Sachs stated it was shutting down the Global Alpha fund, once the firm's largest hedge fund. The announcement followed a reported decline in fund balances to less than $1.7 billion in June 2011 from $11 billion in 2007. The decline was caused by investors withdrawing from the fund following earlier substantial market losses. The firm said it expected most of the fund assets to be liquidated by mid-October 2011.[66]

In 2009, the Goldman Sachs Asset Management hedge fund was the 9th largest in the United States, with $20.58 billion under management.[63] This was down from $32.5 billion in 2007, after client redemptions and weaker investment performance.[64][65]

As the name suggests, the firm's Asset Management and Securities Services segment is divided into two components: Asset Management and Securities Services. The Asset Management division provides investment advisory and financial planning services and offers investment products (primarily through separately managed accounts and commingled vehicles) across all major asset classes to a diverse group of institutions and individuals worldwide.[62] The unit primarily generates revenues in the form of management and incentive fees. The Securities Services division provides clearing, financing, custody, securities lending, and reporting services to institutional clients, including hedge funds, mutual funds, and pension funds. The division generates revenues primarily in the form of interest rate spreads or fees.[62]

Asset management and securities services

In June 2013, Goldman Sachs's Special Situations Group, the proprietary investment unit of the investment bank, purchased a $863 million portion of Brisbane-based Suncorp Group Limited's loan portfolio.[60] The finance, insurance, and banking corporation is one of Australia's largest banks (by combined lending and deposits) and its largest general insurance group.[61] In 2013, distressed-debt investors, seeking investment opportunities in the Asia-Pacific region, particularly in Australia, acquired discounted bonds or bank loans of companies facing distressed debt, with the potential of profitable returns if the companies' performance or their debt-linked assets improves. In 2013, Australia was one of the biggest markets for distressed-debt investors in the region.[60]

Distressed-debt investment

On average, around 68 percent of Goldman's revenues and profits are derived from trading.[59] Upon its IPO, Goldman predicted that this segment would not grow as fast as its Investment Banking division and would be responsible for a shrinking proportion of earnings. The opposite has been true however, resulting in now-CEO Blankfein's appointment to President and Chief Operating Officer after John Thain's departure to run the NYSE and John L. Thornton's departure for an academic position in China.

Trading and Principal Investments is the largest of the three segments, and is the company's profit center.[59] The segment is divided into four divisions and includes Fixed Income (The trading of interest rate and credit products, mortgage-backed securities, insurance-linked securities and structured and derivative products), Currency and Commodities (The trading of currencies and commodities), Equities (The trading of equities, equity derivatives, structured products, options, and futures contracts), and Principal Investments (merchant banking investments and funds). This segment consists of the revenues and profit gained from the Bank's trading activities, both on behalf of its clients (known as flow trading) and for its own account (known as proprietary trading).

Trading and principal investments

The firm has been involved in brokering deals to privatize major highways by selling them to foreign investors, in addition to advising state and local governments – including Indiana, Texas, and Chicago – on privatization projects.[58]

Investment banking is divided into two divisions and includes Financial Advisory (mergers and acquisitions, investitures, corporate defense activities, restructuring and spin-offs) and Underwriting (public offerings and private placements of equity, equity-related and debt instruments). Goldman Sachs is one of the leading M&A advisory firms, often topping the league tables in terms of transaction size. The firm gained a reputation as a white knight in the mergers and acquisitions sector by advising clients on how to avoid hostile takeovers, moves generally viewed as unfriendly to shareholders of targeted companies. Goldman Sachs, for a long time during the 1980s, was the only major investment bank with a strict policy against helping to initiate a hostile takeover, which increased the firm's reputation immensely among sitting management teams at the time. The investment banking segment accounts for around 17 percent of Goldman Sachs's revenues.[57]

Investment banking

Organization

Goldman Sachs is divided into three businesses units: Investment Banking, Trading and Principal Investments, and Asset Management and Securities Services.[56]

On July 15, 2003, Goldman Sachs & Co had a lawsuit for artificially inflating the RSL's stock price by issuing untrue or materially misleading statements in research analyst reports, and paid $3,380,000.00 for settlement.

On April 30, 2002, Goldman Sachs Group Inc was charged because extended the fraud-on-the-market doctrine of Basic Inc. v. Levinson, and one of analysts' misrepresentations affecting the market price of securities.,[55] and paid $12,500,000 for settlement.

Investors have been complaining that the bank has near 11,000 more staffers than it did in 2005, but performances of workers were drastically in decline. In 2011, Goldman's 33,300 employees generated $28.8 billion in revenue and $2.5 billion in profit, but it represents a 25 percent decline in revenue per worker and a 71 percent decline in profit per worker compared with 2005. The staff cuts in its trading and investment banking divisions are possible as the company continues to reduce costs to raise profitability. In 2011, the company reduced its workforce by 2,400 positions.[54]

In Business Week's recent release of the Best Places to Launch a Career 2008, Goldman Sachs was ranked No.4 out of 119 total companies on the list.[52] The current Chief Executive Officer is Lloyd C. Blankfein. The company ranks No.1 in Annual Net Income when compared with 86 peers in the Investment Services sector. Blankfein received a $67.9 million bonus in his first year. He chose to receive "some" cash unlike his predecessor, Paulson, who chose to take his bonus entirely in company stock.[53]

As of 2013, Goldman Sachs employed 31,700 people worldwide.[33] In 2013, the firm reported earnings of $9.34 billion and record earnings per share of $160.66.[48] It was reported that the average total compensation per employee in 2006 was $622,000.[49] Also, the average compensation paid by Goldman, Sachs & Co. to each employee in the first three months of 2013 was $135,594.[50] However, these numbers represent the arithmetic mean of total compensation and is highly skewed upwards as several hundred of the top recipients command the majority of the Bonus Pools, leaving the median that most employees receive well below this number.[51]

Corporate affairs

In August 2015, Goldman Sachs agreed to acquire General Electric Co.'s GE Capital Bank on-line deposit platform. Terms of the transaction were not disclosed, but the purchase includes USD $8-billion of on-line deposits and another USD $8-billion of brokered certificates of deposit. The purchase allows Goldman Sachs to access a stable and inexpensive pool of source of funding.[47]

Increased reliance on deposits as a source of funding

According to regulatory filings the underwriting banks received 3.25 percent of the $1.82 billion raised by Twitter’s IPO. That came to approximately $59.2 million which was shared among the underwriters, which left lead bank, Goldman Sachs, receiving a larger, proportionate share. Of the 70 million shares offered on November 7 in Twitter’s IPO, Goldman Sachs was responsible for placing 27 million, entitling them to 39 percent of the entire fee pool, or about $22.8 million. Chief economist and strategist at ZT Wealth said, “Goldman being the first name on the S-1 has little to do with fees. This is about Goldman rebalancing itself as a serious leader and competing with Morgan Stanley’s dominant position in technology.”[46]

On November 6, 2013, the day before Twitter was to be first traded on the NYSE, Goldman Sachs, as the lead left bank, issued 70 million shares of Twitter priced at $26 per share.[44] Twitter’s shares closed on the first day of trading at $44.90 per share, up 73%. This gave Twitter a company valuation of about $31 billion.[45]

Goldman Sachs was the lead underwriter (lead left) for Twitter’s initial public offering in 2013. At the time, Goldman’s position as lead underwriter was considered “one of the biggest tech prizes around”.[43]

Twitter IPO

In April 2013, Goldman Sachs Group Inc. together with Deutsche Bank led Apple's largest corporate-bond deal in Apple Inc.'s history.[41] The $17 billion offering, which was the largest bond sale on record,[42] was Apple’s first since 1996. Goldman Sachs managed both of Apple’s previous bond offerings in the 1990s.[42]

Apple corporate bond sale

Goldman Sachs's borrowings totaled $782 billion in hundreds of transactions over these months.[38] This number is a total of all transactions over time and not the outstanding loan balance. The loans have been fully repaid in accordance with the terms of the facilities.[39][40]

Goldman Sachs was one of the heaviest users of these loan facilities, taking out numerous loans from March 18, 2008 – April 22, 2009. The Primary Dealer Credit Facility (PDCF), the first Fed facility ever to provide overnight loans to investment banks, loaned Goldman Sachs a total of $589 billion against collateral such as corporate market instruments and mortgage-backed securities.[36] The Term Securities Lending Facility (TSLF), which allows primary dealers to borrow liquid Treasury securities for one month in exchange for less liquid collateral, loaned Goldman Sachs a total of $193 billion.[37]

During the 2008 Financial Crisis, the Federal Reserve introduced a number of short-term credit and liquidity facilities to help stabilize markets. Some of the transactions under these facilities provided liquidity to institutions whose disorderly failure could have severely stressed an already fragile financial system.[35]

Use of Federal Reserve's Emergency Liquidity Programs

In June 2009, Goldman Sachs repaid the U.S. Treasury’s TARP investment, with 23% interest (in the form of $318 million in preferred dividend payments and $1.418 billion in warrant redemptions).[31] On March 18, 2011, Goldman Sachs acquired Federal Reserve approval to buy back Berkshire's preferred stock in Goldman.[32] In December 2009, Goldman announced their top 30 executives will be paid year-end bonuses in restricted stock, with clawback provisions, that must go unsold for five years.[33][34]

[30] Cuomo called the move "appropriate and prudent", and urged the executives of other banks to follow the firm's lead and refuse bonus payments.

TARP and Berkshire Hathaway investment

According to a 2009 BrandAsset Valuator survey taken of 17,000 people nationwide, the firm's reputation suffered in 2008 and 2009, and rival Morgan Stanley was respected more than Goldman Sachs, a reversal of the sentiment in 2006. Goldman refused to comment on the findings.[26]

On September 21, 2008, Goldman Sachs and Morgan Stanley, the last two major investment banks in the United States, both confirmed that they would become traditional bank holding companies, bringing an end to the era of investment banking on Wall Street.[22][23] The Federal Reserve's approval of their bid to become banks ended the ascendancy of the securities firms, 75 years after Congress separated them from deposit-taking lenders, and capped weeks of chaos that sent Lehman Brothers into bankruptcy and led to the rushed sale of Merrill Lynch & Co. to Bank of America Corp.[24][25]

So let's reduce this macro story to human scale. Meet GSAMP Trust 2006-S3, a $494 million drop in the junk-mortgage bucket, part of the more than half-a-trillion dollars of mortgage-backed securities issued last year. We found this issue by asking mortgage mavens to pick the worst deal they knew of that had been floated by a top-tier firm – and this one's pretty bad. It was sold by Goldman Sachs – GSAMP originally stood for Goldman Sachs Alternative Mortgage Products but now has become a name itself, like AT&T and 3M. This issue, which is backed by ultra-risky second-mortgage loans, contains all the elements that facilitated the housing bubble and bust. It's got speculators searching for quick gains in hot housing markets; it's got loans that seem to have been made with little or no serious analysis by lenders; and finally, it's got Wall Street, which churned out mortgage "product" because buyers wanted it. As they say on the Street, "When the ducks quack, feed them."

On October 15, 2007, as the crisis had begun to unravel, Allan Sloan, a senior editor for Fortune magazine, said:[21]

During the 2007 subprime mortgage crisis, Goldman was able to profit from the collapse in subprime mortgage bonds in the summer of 2007 by short-selling subprime mortgage-backed securities. Two Goldman traders, Michael Swenson and Josh Birnbaum, are credited with being responsible for the firm's large profits during the crisis.[18][19] The pair, members of Goldman's structured products group in New York, made a profit of $4 billion by "betting" on a collapse in the sub-prime market, and shorting mortgage-related securities. By summer 2007, they persuaded colleagues to see their point of view and convinced skeptical risk management executives.[20] The firm initially avoided large subprime writedowns, and achieved a net profit due to significant losses on non-prime securitized loans being offset by gains on short mortgage positions. The firm's viability was later called into question as the crisis intensified in September 2008.

Actions in the 2007–2008 mortgage crisis

In May 2006, Paulson left the firm to serve as U.S. Treasury Secretary, and Lloyd C. Blankfein was promoted to Chairman and Chief Executive Officer. Former Goldman employees have headed the New York Stock Exchange, the World Bank, the U.S. Treasury Department, the White House staff, and firms such as Citigroup and Merrill Lynch.

In 1999, Goldman acquired Hull Trading Company, one of the world's premier market-making firms, for $531 million. More recently, the firm has been busy both in investment banking and in trading activities. It purchased Spear, Leeds, & Kellogg, one of the largest specialist firms on the New York Stock Exchange, for $6.3 billion in September 2000. It also advised on a debt offering for the Government of China and the first electronic offering for the World Bank. In 2003 it took a 45% stake in a joint venture with JBWere, the Australian investment bank. In 2009 The Private Wealth Management arm of JBWere was sold into a joint venture with National Australia Bank. Goldman opened a full-service broker-dealer in Brazil in 2007, after having set up an investment banking office in 1996. It expanded its investments in companies to include Burger King, McJunkin Corporation,[17] and in January 2007, Alliance Atlantis alongside CanWest Global Communications to own sole broadcast rights to the all three CSI series. The firm is also heavily involved in energy trading, including oil, on both a principal and agent basis.

One of the largest events in the firm's history was its own IPO in 1999. The decision to go public was one that the partners debated for decades. In the end, Goldman decided to offer only a small portion of the company to the public, with some 48% still held by the partnership pool.[15] 22% of the company was held by non-partner employees, and 18% was held by retired Goldman partners and two longtime investors, Sumitomo Bank Ltd. and Hawaii's Kamehameha Activities Assn (the investing arm of Kamehameha Schools). This left approximately 12% of the company as being held by the public. With the firm's 1999 IPO, Paulson became Chairman and CEO of the firm. As of 2009, after further stock offerings to the public, Goldman is 67% owned by institutions (such as pension funds and other banks).[16]

Another momentous event in Goldman's history was the Mexican bailout of 1995. Rubin drew criticism in Congress for using a Treasury Department account under his personal control to distribute $20 billion to bail out Mexican bonds, of which Goldman was a key distributor.[13] On November 22, 1994, the Mexican Bolsa stock market had admitted Goldman Sachs and one other firm to operate on that market.[14] The 1994 economic crisis in Mexico threatened to wipe out the value of Mexico's bonds held by Goldman Sachs.

Also in 1994, Jon Corzine assumed leadership of the firm as CEO, following the departure of Rubin and Friedman.

Robert Rubin and Stephen Friedman assumed the Co-Senior Partnership in 1990 and pledged to focus on globalization of the firm and strengthening the Merger & Acquisition and Trading business lines. During their reign, the firm introduced paperless trading to the New York Stock Exchange and lead-managed the first-ever global debt offering by a U.S. corporation. It also launched the Goldman Sachs Commodity Index (GSCI) and opened a Beijing office in 1994.

In 1986, the firm formed Goldman Sachs Asset Management, which manages the majority of its mutual funds and hedge funds today. In the same year, the firm also underwrote the IPO of Microsoft, advised General Electric on its acquisition of RCA and joined the London and Tokyo stock exchanges. 1986 also was the year when Goldman became the first United States bank to rank in the top 10 of mergers and acquisitions in the United Kingdom. During the 1980s the firm became the first bank to distribute its investment research electronically and created the first public offering of original issue deep-discount bond.

On November 16, 1981, the firm acquired J. Aron & Company, a commodities trading firm which merged with the Fixed Income division to become known as Fixed Income, Currencies, and Commodities. J. Aron was a player in the coffee and gold markets, and the current CEO of Goldman, Lloyd Blankfein, joined the firm as a result of this merger. In 1985 it underwrote the public offering of the real estate investment trust that owned Rockefeller Center, then the largest REIT offering in history. In accordance with the beginning of the dissolution of the Soviet Union, the firm also became involved in facilitating the global privatization movement by advising companies that were spinning off from their parent governments.

1980–1999

John L. Weinberg (the son of Sidney Weinberg), and John C. Whitehead assumed roles of co-senior partners in 1976, once again emphasizing the co-leadership at the firm. One of their initiatives[11] was the establishment of 14 business principles that the firm still claims to apply.[12]

because it pledged to no longer participate in hostile takeovers.
investment advisor This action would boost the firm's reputation as an [10]

This article was sourced from Creative Commons Attribution-ShareAlike License; additional terms may apply. World Heritage Encyclopedia content is assembled from numerous content providers, Open Access Publishing, and in compliance with The Fair Access to Science and Technology Research Act (FASTR), Wikimedia Foundation, Inc., Public Library of Science, The Encyclopedia of Life, Open Book Publishers (OBP), PubMed, U.S. National Library of Medicine, National Center for Biotechnology Information, U.S. National Library of Medicine, National Institutes of Health (NIH), U.S. Department of Health & Human Services, and USA.gov, which sources content from all federal, state, local, tribal, and territorial government publication portals (.gov, .mil, .edu). Funding for USA.gov and content contributors is made possible from the U.S. Congress, E-Government Act of 2002.

Crowd sourced content that is contributed to World Heritage Encyclopedia is peer reviewed and edited by our editorial staff to ensure quality scholarly research articles.

By using this site, you agree to the Terms of Use and Privacy Policy. World Heritage Encyclopedia™ is a registered trademark of the World Public Library Association, a non-profit organization.